Yahoo Finance China’s 10-Year Yield Falls to Record as Economic Gloom Deepens
(Bloomberg) -- The yield on China’s benchmark bonds fell to a record low as investors continued to snap up the notes amid pessimism about the domestic economy.
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The onshore 10-year government yield declined two basis points to 2.18%, set to close at the lowest since Bloomberg began tracking the data in 2002. Yields on the 20- and 50- year bonds have been trading at their historic lows for months.
The bonds have surged on the back of lackluster growth in China, expectations for interest-rate cuts and the impact of ample liquidity in the financial system as loan demand is so weak. An increase in government borrowing to boost fiscal stimulus has failed to put off bond buyers.
The People’s Bank of China has been pushing back against the rally and has hinted it may sell some of its own holdings to cool the advance.
The latest economic indicators underscore persistent challenges to China’s growth. Official data showed factory activity contracted for a second straight month in June, while new-home sales extended a decline last month, albeit at a slower pace.
“The reason for the yield drop is mainly because of the pessimistic mood on the economy,” said Stephen Chiu, chief Asia FX and rates strategist at Bloomberg Intelligence. “I really have no idea how low it will get before the PBOC steps up, but the next handle to watch will be 2%-2.1%.”
The move come as China watchers prepare for one of the country’s biggest annual policy meetings later this month, the so-called Third Plenum. Chinese leaders at an economic meeting in December said they were contemplating a “new round of fiscal and tax reform,” sparking hopes that details may be unveiled there.
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For Zhaopeng Xing, senior strategist at Australia & New Zealand Banking Group, the drop in yields suggests traders seem to be dialing back their expectations for big fiscal stimulus. He sees the benchmark yield dropping to around the 2.15% level.
“The bond rally reflects lingering concerns over weak domestic demand and hopes that PBOC may need to cut policy rates in the third quarter to bolster growth,” he said. “Demand for bonds will be mainly supported by banks’ wealth management products as they receive continued fund inflows from a flight out of deposits.”
--With assistance from Jing Zhao.
(Updates with economic data and additional comment.)
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